1. Summary

This decision adopts the framework for implementing Pub. Util. Code § 390,1 which governs payments to qualifying facilities (QFs) receiving short-run avoided cost (SRAC) energy payments. We adopt the day-ahead zonal Power Exchange (PX) market-clearing price as the SRAC energy price, once the Commission makes required findings under Section 390. We conclude that for QFs, whose energy production is a must take resource delivered exclusively to the PX, the PX price represents an "all-in" price, containing both energy and capacity value. Consistent with this finding, we eliminate as-available capacity payments to QFs holding as-available contracts. For QFs receiving firm capacity payments, forecast as-available capacity payments, or forecast as-delivered capacity payments, Section 390(d) governs removal of the value of capacity from the PX price. The statutory language limits our ability to develop a "capacity subtracter" that accurately represents the capacity value in the market. Therefore we adopt the value of capacity definition established by Section 390(d) but we also identify the capacity value we would have adopted, were it not for the statutory limitation.

This decision adopts Generation Meter Multipliers (GMMs) as the transmission line loss factor to be used in calculating QF payments once QFs are paid the PX day-ahead zonal market-clearing price. While QFs continue to receive payments under Section 390(b), we adopt a modified GMM formula for the transmission loss factor of GMM QF/GMM SYS, to be implemented with the first posting following the effective date of this decision.

This decision concludes that if the PX is the market where the utilities procure the majority of their energy requirements and it reasonably represents the costs of other utility purchases, then the PX represents the utilities' avoided cost and is functioning properly for the limited purpose of paying QFs. This decision passes no judgment on whether the electricity market as a whole is functioning properly or efficiently. We will address whether the criteria for determining if the PX is functioning properly for these limited purposes in phase 2.